City National Bank Sues to Secure Payment from Fund Manager
Submitted May 25, 2010, 6:20 PM
A Los Angeles bank out more than $12 million is seeking redress in a South Bay courtroom in a dispute involving Keiretsu Forum, Bay Area developer David Taran and a handful of the region’s highest-profile business executives.
City National Bank, the largest L.A. bank by assets and a Bay Area lender as well, provided a $25 million credit line to Page Mill Properties and its Access Fund. The fund is a real-estate investment vehicle formed in May 2007 by Taran and Keiretsu founder Randy B. Williams. The two men also founded the fund’s management company, PMP Access Fund Manager.
The credit facility matured Oct. 1, but the bank remains unpaid.
Investors in the Page Mill Access Fund include some of the region’s most accomplished business leaders. According to court documents, they include Dennis A. Chantland, a former chief financial officer for Williams Sonoma; John H. Hammergren, chairman, president and chief executive officer of McKesson Corp.; John H. Quandt, a former chief financial officer for Levi Strauss Americas; David S. Pottruck, a former president, chief executive officer and board member for the Charles Schwab Corp.; Randy M. Haykin, a Bay Area venture capitalist; and Paul Magliocco, a South Bay inventor with ties to Nextest Systems Corp.
Irwin Gold, a senior managing director for international investment bank Houlihan Lokey in the company’s Los Angeles and New York offices and co-chairman of the Houlihan board of directors, is also among the investors.
In a hearing May 25, City National sought to have Santa Clara Superior Court Judge James P. Kleinberg issue a writ of possession to require fund manager Taran and his Page Mill Access Fund turn over to the bank any monetary judgements or arbitration awards gained against investors in the fund.
The fund itself and the fund manager, represented by separate attorneys, oppose such an order.
An attorney for the bank, Frank T. Pepler of Pepler Mastromonaco LLP in San Francisco, told the court May 25 that the process has been exasperating. Different aspects of the litigation have wound up before at least three Santa Clara County judges, even as the central dispute is handled through arbitration, which is now only beginning. That arbitration “is hotly contested,” Pepler said, and the bank has found itself uncomfortably lodged between the investors and Page Mill.
The parties are suing and countersuing one another. The investors have made clear to the bank that they will consider any payments to Page Mill as satisfying their obligations, whether those monies flow to the bank or not, Pepler told the court. The fund and fund manager have not helped the bank to collect from the investors either, he said.
Page Mill Access Fund and the fund manager “have conducted what seems to be a lawyer shell game in which City National Bank is never able to obtain exactly the correct assurances from exactly the correct lawyers at exactly the correct time,” Pepler wrote in his pleadings.
In court, Pepler noted that the bank is the sole party to the wide-ranging dispute that is actually out real dollars. “The investors have not paid a dime,” he said.
Investors in the fund signed only commitments to invest up to certain thresholds and have refused to honor those arrangements, accusing Page Mill of fraud and the bank of complicity.
Following arguments from the parties, Kleinberg declined to issue a ruling. However, during the hearing, the judge indicated in several remarks that was disinclined to grant the motion, noting that such writs are an “extraordinary remedy” that he has granted only rarely in the past.
So far, the fund manager has secured two judgements and one arbitration award. One judgment is for more than $2 million from Kevin Grauman as trustee of the Grauman Family Trust. Grauman is a founder of The Outsource Group, an East Bay provider of human-resource services to small companies that he sold in 2006 to a national competitor. A second judgment requires Vertical Venture Capital LLC to forward $400,000 to the fund.
Neither sum has been landed in the Access Fund bank account, however, and a lawyer representing the fund in court on May 25 said the Grauman judgment “appears to be uncollectible.”
The arbitration award, which is contested in federal court in San Francisco, stipulates that Shane C. Albers forward $400,000 to the fund. At the time of the investment, Albers was chief executive officer of Scottsdale-based IMH Secured Loan Fund LLC, a commercial real estate lender and investor with offices in California.
City National is the largest bank headquartered in Los Angeles with $20 billion in assets at the close of the first quarter, according to public records. The bank’s holding company, City National Corp., is traded on the New York Stock Exchange.
City National expanded to Northern California beginning in 2000 with the purchase of The Pacific Bank and the 2002 acquisition of Oakland-based Civic BanCorp. City National has 73 offices in California, Nevada and New York with 17 full-service regional centers including one in the Bay Area. The bank has nine Bay Area branches, including two in downtown San Francisco and a San Jose branch acquired last year. The bank specializes in “highly personalized client relationships,” it says in marketing material.
The Page Mill Access Fund was a parallel or “sidecar” investment vehicle to a much larger real-estate investment fund, Page Mill Properties II. That fund blew up last year when Page Mill defaulted on a $250 million loan owed Wells Fargo Bank. Wells ultimately foreclosed on more than 1,800 East Palo Alto apartments and other East Palo Alto properties that Taran had aggregated over a period of years and which served as the Wells loan collateral.
In a private placement memorandum presented to the Access Fund investors, Page Mill said its immediate goal in East Palo Alto was to stabilize the assets and increase their operating performance. In the longer-term, however, the fund sought redevelopment “through urban infill mid-rise residential and mixed-use development and redevelopment for rent or for sale.” Those plans were not welcomed by the community of East Palo Alto.
According to court records, City National Bank extended its last $600,000 in credit to the Access Fund on Sept. 3, 2009. That was not quite a month after Page Mill failed to make a $50 million payment on its Wells Fargo loan. That missed payment ultimately led the bank to foreclose on the Page Mill East Palo Alto properties.
In court documents, the Access Fund manager acknowledges that it has secured judgments against two Access Fund investors and an arbitration award against a third, but it claims no proceeds from any of the three are in the fund manager’s or fund’s possession.
The Access Fund manager also says that its own commitment of $1 million to the Access Fund is not available to the bank. The commitment is not “yet due ...,” the Access Fund and fund manager say in their court filings, “because its contribution is triggered by payment of all investor members’ required capital contributions.” That clearly has not happened.
